Watch out for this gimmick when municipal officials cry poverty

In a news article last week, The Times Herald newspaper in Port Huron described in dire terms the consequences for the city if voters don’t approve two local property tax hikes on Aug. 8.

According to the article, not approving the tax hikes would mean reductions in police and fire protection as well as “no city pools, no funding for parks and recreation programs” or a sports and concert venue.

The article stated that in the past three years, “the city has reduced government spending by $3 million by reducing staff and privatizing some services, among other actions.”

The city of Port Huron is spending more in 2017 than it spent three years ago. This is true of overall spending and spending from the city’s general fund, which covers day-to-day salary and operating expenses.

But as often happens when municipal finance is in the news, spending reductions in one area are portrayed as cuts to the overall budget even though spending in other areas has risen by a greater amount, and overall spending is up.

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Port Huron provides an example. In the past three years, the city’s overall spending rose from $25.1 million in 2014 to $27.9 million in 2016. The general fund budget rose $4.1 million over the period.

Like many other municipalities in Michigan and elsewhere, what is really stressing Port Huron’s finances is the growing burden imposed by years of failing to property fund its pension obligations. Because of this failure, Port Huron’s pension expense rose from $3.2 million in 2014 to $4.9 million in 2017.

In fact, if the current trend continues, pension expense is likely to exceed total payroll in just a few years. The city’s pension contribution rate has risen from 62 percent of payroll in 2014 to 86 percent in 2017. For every $1 of salary earned by a Port Huron employee this year, the city is paying 86 cents in pension system expenses.

“We cut and cut and cut and we never see the savings,” said City Manager James Freed.

The City of Port Huron, which had 229 full-time employees in 2016, offers to all of its employees a defined-benefit pension plan with the Municipal Employees’ Retirement System of Michigan (MERS). According to the most recent MERS 2015 actuarial report, the city's pension fund is 57.4 percent funded.

Residents are being asked to vote on a pair of 5-year tax increases: a 3-mill public safety tax and a 1-mill parks and recreation tax.